Japan pays a high price as it goes down market

TOKYO – Japan is cheap. Yes, you read that right. This may surprise – or astonish – those familiar with the country’s high value-added brands, its “bubble era” or Japanese land prices – touted as among the most expensive in the world. It certainly flies in the face of conventional wisdom. But decades of stagnant wages, deflation and the gut-punch left by Abenomics have left Japan the Daiso of the world. Examples? Out of 141 countries, Japan has the fourth-lowest starting salary. It has the lowest entry price for Disneyland. And Big Mac prices in Japan are on par with those of an emerging economy.  The high price the world’s third-largest economy is paying to be “cheap” is the subject of one of this year’s most talked-about vernacular bestsellers, Cheap Japan: Stagnation Indicated By Prices (Nikkei Publishing Inc, March 8, 2021). The book, by financial reporter Rei Nakafuji of the Nikkei, paints a dismal picture of present-day Japan, where multiple measures to provoke some inflation have failed, to the point where some prices have fallen to the level of those in emerging economies. On the macro level, Japan is becoming a “cheap” country in terms of, not just its prices, but also its human resources. It has abysmally low starting salaries for graduates, and – exacerbating existing labor shortages – is facing a brain drain. Nakafuji argues that Japan is on course to becoming a poor nation, dependent on tourism, where the young and brightest minds leave the country for better jobs with better pay and working conditions. It’s all an astonishing decline for a country that 30 years ago was the world’s most expensive. The land of the non-rising price Despite Japan’s reputation as a high-price destination, if you’re visiting from a wealthy country, you will find many things incredibly low-priced. A luxury hotel room that might cost you US$1400 in the US a night is available for $700 in Japan. You can get a delicious beef bowl for 300 yen ($2.61) or a cheap Big Mac for 390 yen ($3.39) – slightly more than half it would cost ($5.74) in the US. If family entertainment is your thing, Japan offers the lowest entry price among all Disneylands. Or why not go shopping? One Japanese global retail success of recent years is Daiso – noted for its plethora of cheap goods.   Daiso’s concept stems from the “100-yen store” where everything is priced at 100 yen ($0.87). Of course, many goods now actually cost 200 yen, 300 yen or more, but the idea is firmly grounded: Shop here for cheap stuff. According to recent figures, Daiso has 2,248 stores in 26 countries and regions overseas. There are 1,365 operating in South Korea, 120 in Thailand and 44 in the United Arab Emirates. But only in Japan can goods be bought for 100 yen, or the local equivalent. In Thailand, thought to be much “poorer” than Japan, most of the products are sold for about 210 yen (in Thai currency), while in the US, prices are roughly 173 yen. This is good news for the local tourism industry, which has a new selling point. “Goods and services that are often markedly cheaper than those in other countries are among the factors driving Japan’s recent tourism boom,” Nakafuji writes. “Spending by foreign visitors tripled to 4.52 trillion yen ($41.6 billion) in 2018 from 2013.” Of course, much of this has to do with Tokyo’s recent focus on upgrading its service economy, tourism promotion campaigns run by the central government and the big events of recent years – the 2019 Rugby World Cup and the 2020 Olympics and Paralympics. Even so, it is a startling finding that people are coming to Japan to vacation – or at least they were before Covid struck – because it’s cheap. This may put smiles on the faces of overseas visitors. But Daiso does great business in Japan because the country is stuck in a perpetual cycle of low salaries and low prices. This is where the problem lies. The reasons so many prices are so low is because Japan is increasingly a nation of poor people – the line between “cheap” and “poverty” is blurry. A veteran of the Imperial Japanese Navy, carrying a rising sun ensign, leads a group into the controversial Yasukuni Shrine. But it is falling prices, not rising suns, that are the bigger political challenge facing Tokyo. Photo: AFP Cheap is not good Why has this happened? Nakafuji doesn’t give a single clear answer, but does put forward a range of reasons. One standout is a quote from Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute. “In a nutshell, Japan’s long deflation has destroyed the mechanism by which companies pass on prices,” he said. “If companies cannot raise product prices, they cannot make money; if companies cannot make money, wages cannot rise; if wages cannot rise, consumption will not increase, and as a result prices remain the same. In this way, Japan’s ‘purchasing power’ has weakened.” And Japan is not only suffering from weakening purch

Japan pays a high price as it goes down market

TOKYO – Japan is cheap. Yes, you read that right. This may surprise – or astonish – those familiar with the country’s high value-added brands, its “bubble era” or Japanese land prices – touted as among the most expensive in the world.

It certainly flies in the face of conventional wisdom. But decades of stagnant wages, deflation and the gut-punch left by Abenomics have left Japan the Daiso of the world.

Examples? Out of 141 countries, Japan has the fourth-lowest starting salary. It has the lowest entry price for Disneyland. And Big Mac prices in Japan are on par with those of an emerging economy. 

The high price the world’s third-largest economy is paying to be “cheap” is the subject of one of this year’s most talked-about vernacular bestsellers, Cheap Japan: Stagnation Indicated By Prices (Nikkei Publishing Inc, March 8, 2021).

The book, by financial reporter Rei Nakafuji of the Nikkei, paints a dismal picture of present-day Japan, where multiple measures to provoke some inflation have failed, to the point where some prices have fallen to the level of those in emerging economies.

On the macro level, Japan is becoming a “cheap” country in terms of, not just its prices, but also its human resources. It has abysmally low starting salaries for graduates, and – exacerbating existing labor shortages – is facing a brain drain.

Nakafuji argues that Japan is on course to becoming a poor nation, dependent on tourism, where the young and brightest minds leave the country for better jobs with better pay and working conditions.

It’s all an astonishing decline for a country that 30 years ago was the world’s most expensive.

The land of the non-rising price

Despite Japan’s reputation as a high-price destination, if you’re visiting from a wealthy country, you will find many things incredibly low-priced.

A luxury hotel room that might cost you US$1400 in the US a night is available for $700 in Japan. You can get a delicious beef bowl for 300 yen ($2.61) or a cheap Big Mac for 390 yen ($3.39) – slightly more than half it would cost ($5.74) in the US.

If family entertainment is your thing, Japan offers the lowest entry price among all Disneylands. Or why not go shopping? One Japanese global retail success of recent years is Daiso – noted for its plethora of cheap goods.  

Daiso’s concept stems from the “100-yen store” where everything is priced at 100 yen ($0.87). Of course, many goods now actually cost 200 yen, 300 yen or more, but the idea is firmly grounded: Shop here for cheap stuff.

According to recent figures, Daiso has 2,248 stores in 26 countries and regions overseas. There are 1,365 operating in South Korea, 120 in Thailand and 44 in the United Arab Emirates. But only in Japan can goods be bought for 100 yen, or the local equivalent.

In Thailand, thought to be much “poorer” than Japan, most of the products are sold for about 210 yen (in Thai currency), while in the US, prices are roughly 173 yen.

This is good news for the local tourism industry, which has a new selling point.

“Goods and services that are often markedly cheaper than those in other countries are among the factors driving Japan’s recent tourism boom,” Nakafuji writes. “Spending by foreign visitors tripled to 4.52 trillion yen ($41.6 billion) in 2018 from 2013.”

Of course, much of this has to do with Tokyo’s recent focus on upgrading its service economy, tourism promotion campaigns run by the central government and the big events of recent years – the 2019 Rugby World Cup and the 2020 Olympics and Paralympics.

Even so, it is a startling finding that people are coming to Japan to vacation – or at least they were before Covid struck – because it’s cheap.

This may put smiles on the faces of overseas visitors. But Daiso does great business in Japan because the country is stuck in a perpetual cycle of low salaries and low prices.

This is where the problem lies. The reasons so many prices are so low is because Japan is increasingly a nation of poor people – the line between “cheap” and “poverty” is blurry.

A veteran of the Imperial Japanese Navy, carrying a rising sun ensign, leads a group into the controversial Yasukuni Shrine. But it is falling prices, not rising suns, that are the bigger political challenge facing Tokyo. Photo: AFP

Cheap is not good

Why has this happened? Nakafuji doesn’t give a single clear answer, but does put forward a range of reasons. One standout is a quote from Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.

“In a nutshell, Japan’s long deflation has destroyed the mechanism by which companies pass on prices,” he said. “If companies cannot raise product prices, they cannot make money; if companies cannot make money, wages cannot rise; if wages cannot rise, consumption will not increase, and as a result prices remain the same. In this way, Japan’s ‘purchasing power’ has weakened.”

And Japan is not only suffering from weakening purchasing power, it is suffering from weakened mating power. Japan’s aging and shrinking population has resulted in years of labor shortages. On the plus side, the chronic shortage of workers has led to innovative solutions, such as hotel front desks manned by robots and driverless trains. 

However, the imbalance between supply and demand hasn’t resulted in rising wages much. Real wages, adjusted for inflation, have fallen for most of the past 30 years, and are, in real terms, stuck at about the same level as they were two decades ago.

Moreover, increasing numbers of workers are “non-regulars” without full benefits. This upsurge of poorly paid non-regular workers has created a new underclass. They rose from 15% of the labor force in the 1980s to nearly 40% at present.

A regular worker typically earns ¥2,500 ($21) an hour; by contrast, temporaries receive ¥1,660 ($14.42) and part-timers only ¥1,050 ($9.12) an hour. Non-regular workers also rarely get company health insurance or any of the perks of regular workers. 

Sexism plays a role, too. That Japan has a notoriously low glass ceiling is well known. That sexism contributes to national poverty is not – but that does not make it any less true.

In terms of the relative poverty rate of single parent families, Japan has the highest rate, of nearly 50%. Yet the employment rate of single mothers in Japan is 87.7% – one of the highest among OECD countries.

In other words, they are working much harder than single mothers in other countries and the fact they are still poor points to the dire size of their salaries.

The annual report released by the Ministry of Health, Labor and Welfare in November found that the number of suicides in Japan rose by 912 to 21,081 in 2020, marking the first increase since 2009. 

The increase was attributed to the pandemic, but that may not be telling the whole story.

Although the number of suicides among men fell for the 11th consecutive year, those among women rose 15%, the first increase in two years. It’s probably no coincidence that 70% of underpaid “non-regular” workers are women.

Meanwhile, those lucky enough to step onto the first rung of the career ladder are off to a bad start.

Consulting firm Willis Towers Watson looked at annual base salaries for first-year college graduates around the world in 2019, the book finds. The US averages 6.29 million yen, Germany 5.31 million yen, France 3.69 million yen and South Korea 2.86 million yen.

But a Japanese graduate’s starting salary was 2.62 million yen – the fourth-lowest among 114 countries. This is one-third of the starting wage in Switzerland – 9.02 million yen – the European nation that is known for what Japan used to be known for – high prices.

Nakafuji is not the only Japanese preaching the non-virtues of poverty.

Others are seeing a reverse of long-held trends – such as investment. Japan is a massive investor in the “workshop of the world,” but China’s state-owned CITIC Group has acquired 14 small and medium-sized Japanese companies and is absorbing their technologies and labor forces.

Of course, that is mere cross-border capital flow. A more significant finding is the labor movement – which suggests that a brain drain has started.

Economist Yukio Noguchi, a professor emeritus at Hitotsubashi University, wrote in a Mainichi Shimbun editorial: “In 20 years, Japanese will be migrating to China to work.”

Ten years ago, that statement would have been dismissed as nonsense.  

In fact, there are already Japanese migrant workers in China. More shockingly for the Japanese, a number of those hail from a flagship national industry.

Anime is iconically Japanese. A standout among the country’s cultural exports, it enjoys a peerless reputation in the animation sector worldwide. But the wages of the animators who produce it are abysmally low.

According to a survey by the Japan Animators and Directors Association, 54.7% of animators earn less than 4 million yen a year, and for young animators in small and medium-sized companies, it is not uncommon to earn 90,000 yen a month. 

Disgusted with such low wages and heavy workloads, human resources are reportedly flowing out one after another to the fast-growing Chinese market, where the quality of work is improving.

Is there a way out for Japan?

Fumio Kishida faces an uphill struggle to regain Japan’s reputation as a land of high value. Photo: AFP / Du Xiaoyi

Kishidanomics vs Abenomics

If there is, it involves renouncing Abenomics, the failed trickle-down theory economic policy that was pushed by former Prime Minister Shinzo Abe during his eight-year tenure. Even its much-vaunted limited success may be due to deliberately falsified statistics by the Japanese government. 

Newly crowned Prime Minister Fumio Kishida is under pressure to perform, given the dire situation left by his two LDP predecessors, the short-lived Yoshihide Suga and the far more influential Abe.

The national discussion has already begun. The Mainichi Shimbun entitled a September 21 editorial “Japan’s inequality crisis demands LDP leadership hopefuls rethink ‘Abenomics’

“Monetary easing and fiscal stimulus have pushed down the value of the yen and fueled stock market gains, but virtually the only ones to reap the rewards were major corporations and the already rich,” the daily wrote.

“Meanwhile, non-permanent employees came to make up nearly 40% of Japan’s workforce. Family budgets were squeezed and consumer spending stagnated. In the end, economic growth continued to wallow in the doldrums, while the country’s debt load swelled to stratospheric levels.”

Kishida appears to be on board. He made clear his plans to boost the economy by raising wages in a policy speech to the Parliament on December 6. Abe’s neo-liberal policies “have been key to driving the global economy’s growth, but at the same time they have had many negative consequences,” he said.

His plan is to “materialize a ‘new capitalism’ that realizes both growth and redistribution.”

Starting next February, Kishida will raise salaries in the fields of caregiving, child care and child education by 3%, or about 110,000 yen a year.

Kishida said the salaries of people in the nursing profession who work at medical facilities that meet certain conditions will also be raised by 3%, or about 140,000 yen annually, gradually. He has also promised tax breaks for companies that raise employee salaries – as much as 40% in corporate tax deductions for increases in pay of up to 4%.

But it is not going to be easy as there are multiple Catch-22s at work.

According to the New York Times on December 24, businesses and lobby groups are already pushing back against Kishida’s wage proposal. The newspaper reported that companies can offer job security in exchange for the low wages paid to their regular workers – while rounding out their workforces with non-regular workers.

Meanwhile, the companies are stuck in the vicious cycle of non-profitability.